News

Gregor Kleinknecht and Anastassia Dimmek contribute to the second edition of The Art Law Review

  • January 19, 2022
  • By Gregor Kleinknecht, Partner and Anastassia Dimmek, Associate

Gregor and Anastassia’s UK chapter in the second edition of The Art Law Review can also be accessed via the link here

Introduction

During 2021, the development of the art market in the United Kingdom was characterised by a combination of factors, including the continuing effects of the covid-19 pandemic and the new trading realities following the end of the Brexit transition period. Like all other art market centres, the UK market was fundamentally affected by the covid-19 pandemic in 2020, with a large number of art fairs cancelled, dealers and galleries closing for several months during the national lockdown, and economic uncertainty contributing further to declining sales. At the same time, non-fungible tokens (NFTs) established themselves in the market and grabbed the news headlines. On the basis of the latest art market report, the UK remained one of the major centres of the international art market in 2020, retaining its second position with a 20 per cent market share, equivalent to US$9.9 billion, closely behind the United States and roughly on a par with China. Although behind these figures lay a 22 per cent decline in the UK market, the UK continued to dominate the European art market.2 Auction sales accounted for US$2.8 billion in sales, down by one-third from the previous year, with the UK nevertheless retaining its market position for auction sales in third place globally.3 The four large London auction houses (Christie’s, Sotheby’s, Bonhams and Phillips) typically account for around 70 per cent to 75 per cent of UK total auction sales.4

Dealer sales also declined by 24 per cent, with the biggest impact seen in the segment of dealers with an annual turnover greater than £5 million. Dealers in the contemporary art market tended to do better than those in the other sectors of the market.5 The decline in market share of art fair sales during 2020 was perhaps unsurprising, with many live events having been rescheduled or cancelled altogether. A survey by Art Basel and UBS showed that, in 2020, 62 per cent of fairs moved to online viewing rooms or other digital versions of their fairs.6 The experience in the UK reflected a sharp decline in sales made at art fairs globally, with only 13 per cent of total dealer sales achieved at art fairs.7

While it is expected that the number of live art fairs will remain lower in the immediate aftermath of the covid-19 pandemic, 68 per cent of collectors stated that they would be comfortable to attend fairs again in person later in 2021.8 At the same time, the pandemic accelerated the move by auction houses, dealers and art fairs to online platforms, viewing rooms and transactions. According to Art Basel and UBS, the share of online sales of art and antiques doubled in value compared to 2019 to US$12.4 billion.9

As travel rules are beginning to ease and in-person events become a more usual occurrence again, it remains to be seen which changes in the presentation and trade of art are here to stay, whether the art market has been transformed into a more digital landscape on a more permanent basis, or whether pre-covid patterns are to return.

The adaptation to changes following the end of the Brexit transition period on 31 December 2020, in particular in relation to VAT and customs procedures, has also slowed the art market.

A new trend that has established itself in the art market is the trade in NFTs, a digital asset whose underlying immutable code in the blockchain is being promoted as quelling authenticity and copyright concerns by recording ownership. Smart contracts are used to set out rules on what rights purchasers acquire and how the copyright in the digital asset can be licensed. The first transaction drawing wider attention to NFTs was the sale of Beeple’s Everydays: The First 5000 Days at Christie’s for US$69.3 million in March 2021.10 NFTs now reach a wider audience within the art market. While stories of fraudsters and hackers have been making news,11 NFTs have found traction with established institutions, with the British Museum minting NFTs for its upcoming Hokusai exhibition in concert with French start-up LaCollection.12 NFTs are said to have given contemporary art sales a significant boost in 2021, including by attracting new groups of buyers, particularly millennials.13

The year in review

Many art businesses whose business was affected by the covid-19 pandemic, and who suffered significant losses as a result, sought to bring insurance claims under business interruption policies, only to find these claims initially denied in many cases. The Financial Conduct Authority brought a test case, in which the Supreme Court handed down a lengthy and complex decision on 15 January 2021, providing guidance on the policy wording and requiring thousands of claims to be paid out.14

While the impact of covid-19 on the art market and the novelty of NFTs have been attracting most of the news headlines over recent months, the implications of Brexit on the trade between the UK and the EU are now becoming clearer and are starting to be felt in the art market. These Brexit-related changes are most noticeable in the areas of application of VAT to imports and exports of artworks, import and export licensing, customs procedures and cross-border dispute resolution, but have much more far-reaching implications on a wide range of factors beyond the trade in goods and services. These include, for example, the ability of art businesses and institutions to employ European staff and artists living and working in the UK, after the free movement of people has come to an end.

Art businesses that are art market participants (AMPs) must now fully comply with the regulatory requirements of the 5th EU Anti-Money Laundering Directive (5AMLD) and the implementing UK regulations,15 with all AMPs having been required to register with Her Majesty’s Revenue and Customs (HMRC) as the sector regulator by 10 June 2021.

On 18 May 2020, the Court of Appeal of England and Wales rejected an appeal in the judicial review proceedings against the Ivory Act 2018, one of the world’s toughest bans on the trade and cross-border movement of antique ivory.16 On 30 July 2020, the UK Supreme Court rejected an application for permission to appeal further the decisions dismissing the judicial review claims.17 The Act is now set to come into force in spring 2022, with a final consultation on the enforcement regime and guidance for use of civil sanctions and the appeals process having closed on 19 September 2021. The ban will apply to domestic dealings with elephant ivory, as well as exports from and imports into the UK, with only a limited list of exemptions available.18 In addition, the government launched a consultation in summer 2021 on the extension of the Act to ivory from other animals. This may include ivory from hippos, walruses and whales.19 There has been some resistance against this proposed extension, especially because the Ivory Act 2018 was drafted specifically with elephants in mind.

Art disputes

i Title in art

Under the Sale of Goods Act 1979 (SGA), title passes when the parties to a transaction intend it to pass. Where this is not set out in contract, various assumptions assist with ascertaining when the parties to a contract intended title to pass. In the case of a private treaty sale of an artwork, title would be assumed to pass when the contract is entered into. Parties will generally displace this rule in their contract for sale by stipulating that title passes on payment of the purchase price. Auction terms also generally stipulate that title to a lot passes on payment, rather than on the fall of the hammer, which is the point at which the contract is usually formed at auction.

The SGA implies certain terms into contracts of sale, including that, unless the seller expressly sells goods subject to limited title (or this can be inferred from the circumstances of the sale), the seller has a right to sell the goods, that the goods are free from any undisclosed charge or encumbrance, and that the buyer will enjoy quiet possession of the goods.20

As news headlines demonstrate, there have been a number of recent high-profile cases of art agents and dealers acting dishonestly, including by selling artworks more than once to different parties, or without permission from their owners, or by fraudulently securing loans against artworks. London, being one of the centres of the international art market, has attracted its share of such fraudsters. Inigo Philbrick, who was arrested by the FBI in the summer of 2020,21 had a gallery in Mayfair. Matthew Green, part of the Green dynasty of art dealers in Mayfair, has been accused of fraudulent dealings and convicted of contempt of court for failing to cooperate in legal proceedings in the UK.22 In July 2021, art intermediary Angela Gulbenkian was sentenced to jail by Southwark Crown Court for stealing more the US$1.4 million as part of an art deal and art investment transaction.23

Although the buyer has no legal duty to enquire into title under English law, this is of no comfort if the buyer has been the victim of fraud. Ultimately, the buyer, for his or her own protection, is responsible for performing due diligence in relation to the transaction and establishing good title. This includes making sufficient enquiries into the identity and reputation of the seller and the provenance of the artwork, and checking registers of lost or stolen art. A buyer who fails to perform due diligence may also unwittingly expose himself or herself to a claim by the true owner in conversion if an artwork is discovered to be stolen or otherwise misappropriated. In that case, the burden of proving that the purchase was made in good faith rests with the buyer.

A buyer who knowingly purchases stolen or illicitly excavated or exported cultural objects faces potential sanctions under criminal law. Under the Dealing in Cultural Objects Offences Act 2003, the Theft Act 1968, the Cultural Property (Armed Conflicts) Act 2017 and the Proceeds of Crime Act 2002, a dishonest buyer might commit various offences, including dealing in cultural objects that are tainted, handling stolen goods, or acquiring or possessing criminal property.

ii Nazi-looted art and cultural property

Claims related to art spoliated during the Nazi era typically crystallise in the London art market when artworks with tainted provenance are consigned for sale at auction or otherwise offered for sale; such claims are then generally resolved through negotiation between the claimants and present owners of the artwork, where appropriate, involving mediation. Historic claims are unlikely to succeed in civil court proceedings where the Limitation Act 1939 applies and claims have invariably become time-barred.

The Spoliation Advisory Panel was established for the purposes of the Holocaust (Return of Cultural Objects) Act 2009 and considers claims from anyone (or from any one or more of their heirs) who lost possession of a cultural object during the Nazi era (1933–1945), where such an object is (1) now in the possession of a UK national collection, or (2) in the possession of another UK museum or gallery established for the public benefit. The Panel’s recommendations are not legally binding but have, to date, in each case been accepted and implemented by the Secretary of State. The Panel operates under its own terms of reference and rules of procedure.24 The Panel’s paramount purpose is to achieve a solution that is fair and just both to the claimant and to the institution. The Panel’s proceedings are an alternative to litigation, not a process of litigation. The Panel will therefore take into account non-legal considerations, such as the moral strength of the claimant’s case.

If the Panel upholds the claim in principle, it may recommend:

  1. the return of the object to the claimant;
  2. the payment of compensation to the claimant, the amount being in the discretion of the Panel having regard to all relevant circumstances including the current market value, but not tied to that current market value;
  3. an ex gratia payment to the claimant; and
  4. the display alongside the object of an account of its history and provenance during and since the Nazi era, with special reference to the claimant’s interest therein; or that negotiations should be conducted with the successful claimant to implement such a recommendation as expeditiously as possible.

The Panel also provides a private mediation service and may be designated to advise about any claim for an item in a private collection at the joint request of the claimant and the owner. The authors are not aware that the Panel has ever given advice in such a case.

Following the London Spoliation Conference in 2017, the Spoliation Advisory Panel and restitution committees of France, Germany, Austria and the Netherlands have come together to form a Network of European Restitution Committees for the purpose of enabling greater collaboration and information sharing between the committees.25

2021 has seen a growing debate about the return of colonial era cultural artefacts by UK and European institutions to their countries of origin. There have been calls to find an appropriate process to review museum collections, and discussion as to whether a panel, such as the Spoliation Advisory Panel, should be involved based on an expanded mandate, or whether an approach based on self-evaluation by individual institutions would be best suited to identify and analyse claims for the return of such items.26 For the time being, there is no generally accepted process based on modern and updated guidelines. Individual decisions vary significantly on a case-by-case basis, with university museums pursuing increasingly liberal repatriation policies.27

iii Limitation periods

Limitation periods for art claims are governed by the Limitation Act 1980. The general time limit for an action founded on tort or contract is six years from the date on which the cause of action accrued. The start of the limitation period can be deferred in cases where an action is based on the defendant’s fraud or concealment of the claimant’s right of action, or in cases where a mistake has taken place. In such cases, the limitation period runs from the time when the claimant discovered, or could with reasonable diligence have discovered, the fraud, concealment or mistake. The general limitation period still applies in cases of theft but, to prevent time running in favour of the thief, the limitation period is suspended in cases where a chattel has been stolen until the chattel is purchased in good faith by a third party, at which point time begins to run.

The position was different under the previous Limitation Act 1939, which applied until May 1981. Under that legislation, the six-year limitation period started running from the original conversion, rather than a good faith purchase. This is particularly significant in relation to historic claims involving the looting of objects during the Nazi era as legal title will inevitably have been extinguished where a conversion can be established.

A recent High Court decision in a case concerning a claim over an allegedly fake antiquity highlights the importance of timely service of process once a claim form has been issued, to prevent proceedings from becoming time-barred.28

iv Alternative dispute resolution

Alternative dispute resolution (ADR), including mediation, arbitration and expert determination, has become an established part of the dispute resolution toolkit in the UK. The fact that ADR proceedings can be agreed to be confidential and lend themselves to the resolution of cross-border and multiparty disputes much more readily than proceedings before a national court, makes them particularly suited to the resolution of art and cultural heritage disputes.

It is now a well-established principle under the Civil Procedure Rules that a party to court proceedings that refuses to engage in ADR at the request of another party may be ordered to pay some (or even all) of the other party’s costs of the proceedings if the court determines that the refusal to mediate was unreasonable, even if the party is successful at the trial.

The Civil Mediation Council serves as an independent body to represent and promote civil and commercial mediation in the UK; it promotes best practice and operates an accreditation scheme for organisations that provide mediation services.29 Art Resolve provides specialist art mediation service in the UK.30

Fakes, forgeries and authentication

The principle of caveat emptor, or buyer beware, applies to the purchase of artworks. The level of due diligence that is required by the buyer will depend on factors such as the relative experience of the buyer and the seller, and the reliance placed by the buyer on the seller’s expertise in the subject matter. The outcomes of authenticity disputes usually turn substantially on their facts.

If an artwork turns out to be a fake or forgery, a buyer’s recourse may depend on whether the artwork was bought through a dealer or at auction. Most major auction houses offer a limited contractual authenticity guarantee in relation to artworks catalogued without qualification as being by a particular artist, which entitles the buyer, subject to various conditions being fulfilled, to return an artwork within a set time period if the work turns out to be a fake or forgery.

Such authenticity guarantees also usually extend to private treaty sales via auction houses. This was recently illustrated in a dispute involving a painting attributed to Frans Hals. In 2010, Sotheby’s brokered the sale of the painting between co-owners, Fairlight Art Ventures (Fairlight) and London dealer Mark Weiss, and US collector Richard Hedreen, who paid US$10.75 million for the painting. A few years later, following scientific analysis of the painting, Sotheby’s accepted that the painting was a forgery, rescinded the contract for sale, and refunded the full purchase price to the buyer. Litigation ensued over whether the sellers were in the circumstances legally liable to repay their portions of the sale proceeds to Sotheby’s. The sellers maintained that the painting was genuine and refused to agree a refund. Mr Weiss eventually settled out of court while Fairlight and Sotheby’s continued to trial. The High Court found in Sotheby’s favour in December 2019.31 In November 2020, the Court of Appeal dismissed Fairlight’s appeal, upholding the lower court’s decision that Sotheby’s was entitled to a reimbursement. The Court was not asked to consider whether the painting was indeed a forgery.32

Dealers may offer a contractual warranty or, if the contract is silent on these points, certain statutory warranties in relation to the quality of an artwork, its fitness for purpose, and whether it matches its description, will be implied into the contract for sale either under the SGA in business-to-business sales,33 or under the Consumer Rights Act 2015 (CRA) in business-to-consumer sales.34

If a sale is deemed a sale by description, and the artist is wrongly identified, the buyer will in principle have the right to cancel the sale. Traditionally, however, the English courts have not regarded sales of artworks, even if the artwork is clearly attributed to a particular artist, as sales by description. The case law in this regard has consistently concerned sales between art market professionals on both sides of the transaction and it remains to be seen whether the courts would be prepared to imply more readily a sale by description in a transaction between a dealer and a consumer, given the protections now afforded to consumers by the CRA.

Art transactions

i Private sales and auctions

The operation of the art market remains affected by the changes prompted by the covid-19 pandemic. The increasing shift from face-to-face transactions to online dealings during the pandemic has had far-reaching legal and practical implications for art businesses of all types and sizes. Like other jurisdictions, the UK has seen an increase in online auctions and private treaty sales, both in the primary and secondary markets, being executed by remote means, as well as artists and dealers making greater use of online viewing rooms and social media platforms to market and sell works directly to an expanded and often global client base.

Many auction houses offered online sales before the pandemic but nevertheless faced a logistical challenge in moving more sales to an online format, due to the lack of opportunities for pre-sale viewings and changes to collection and delivery processes. Sales that try to preserve a traditional format with an auctioneer standing at a rostrum and taking bids on commission and via telephone, as well as online, are still classified as ‘online only’ sales if members of the public are not able to attend in person. This has implications, in particular, for the application of consumer protection legislation to such sales.

Sales of artworks to individuals are regulated in the UK through a range of consumer protection legislation, of which the CRA and the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 are of primary importance. The effect of this legislation is to impose requirements on art businesses selling to individuals, including to make prescribed information available to the consumer in writing before a contract is entered into, to imply various seller warranties into any contract for the sale of an artwork, and to inform the consumer about applicable cancellation rights if the sale is made off-premises (away from the trader’s usual business premises) or by distance means (e.g., telephone, email or via a website). Consumer protection legislation in the UK is largely derived from EU directives and regulations and it remains to be seen whether they will eventually be amended or revoked altogether following the end of the Brexit transition period.

ii Art loans

Loans of artworks for exhibition from private lenders to public museums will typically be insured under the Government Indemnity Scheme, which is administered by the Arts Council England.35 Importantly, certain risks are excluded from cover under the scheme and borrowers and lenders should consider taking out additional commercial insurance cover for excluded risks.

Sections 134 to 138 of Part 6 (Protection of Cultural Objects on Loan) of the Tribunals, Courts and Enforcement Act 2007 provide immunity from seizure for the loan of certain artworks usually kept outside of the UK and not owned by a person who is resident in the UK, when the work enters the UK for temporary public not-for-profit exhibition at an approved museum or gallery. They are supplemented by the Protection of Cultural Objects on Loan (Publication and Provision of Information) Regulations 2008.

iii Cross-border transactions

The importation of cultural goods into the UK is not currently subject to any licensing regime, although certain imports are prohibited (e.g., on the basis of United Nations sanctions (see further below) or in the case of material originating from endangered species under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)), and the Ivory Act 2018 from spring 2022.

The trade in artworks and cultural artefacts between the UK and the EU has been affected fundamentally by the end of the Brexit transition period on 31 December 2020. From a practical point of view, the changes affecting the VAT treatment of imports and exports, and new customs entry and exit procedures, have had the most significant impact on the art industry. Artworks sold from the UK to the EU will now generally be subject to import VAT in the destination country and vice versa. UK export licences continue to be issued by Arts Council England. Imports of (qualifying) artworks from the EU into the UK will require an EU export licence. The UK and the EU will continue to facilitate the return of cultural objects illicitly removed from the UK or EU after 1 January 1993, or not returned at the end of a period of lawful temporary removal (previously governed by EU Directive 1993/94), but the direct right of action in the courts of another Member State has been removed.

The cross-border movement within the EU of cultural goods originating from outside the EU is affected by Regulation (EU) 2019/880 (the Regulation), which came into force on 27 June 2019. The Regulation requires the creation of a central electronic database for the licensing and registration of cultural goods, which must be implemented no later than 28 June 2025 and, as of 28 December 2020, prohibits the import into the EU of certain cultural objects of particular importance, whether for archaeological, historical, literary, artistic or scientific reasons, that have been illegally removed from their country of origin. Cultural objects that have been legally introduced to the EU and meet certain age and value thresholds will require a licence or importer statement. While the Regulation initially formed part of retained EU law under the EU (Withdrawal) Agreement Act 2018 following Brexit, the UK government repealed the Regulation by Article 2 of the Introduction and the Import of Cultural Goods (Revocation) Regulations 2021, which came into force on 24 September 2021.36 It is, however, important to note that the revocation will not impact the continued application of the Regulation to Northern Ireland as part of the Ireland/Northern Ireland protocol.37

From 1 January 2021, EU Regulation (EC) No. 116/2009 on the export of cultural goods (as amended) no longer applies to the UK, and UK rules now govern all exports, regardless of their destination. EU licences granted prior to that date will continue to be valid for their term (up to a limit of 12 months) and restrictions relating to any licences already in operation, such as temporary EU licences, will continue to apply. Following the end of the transition period, a UK licence to export cultural objects to any destination outside the UK will be required. This does not apply to the export of goods of cultural interest from Great Britain to Northern Ireland.38 Exports from Northern Ireland directly to non-EU countries continue to require an EU export licence.

The established framework for the UK export control regime is found in the Export Control Act 2002 and the Export of Objects of Cultural Interest (Control) Order 2003 (as amended). Export licences are also subject to any sanctions in place and goods cannot be sent to embargoed destinations. Currently, the Iraq (United Nations Sanctions) Order 2003 prohibits the import or export of cultural property illegally removed from Iraq since 6 August 1990 and the Export Control (Syria Sanctions) (Amendment) Order 2014 prohibits the import or export of cultural property illegally removed from Syria since 15 March 2011.

The requirement for an export licence under the UK rules is linked to the type of cultural goods in question, their age, value and how long they have been in the UK. The export control system operates by placing temporary export bars on items of ‘national importance’ to allow public institutions in the UK to raise funds to make a matching offer to purchase them at fair market price. National importance is judged by a group of experts in accordance with the Waverley criteria, to establish whether the item in question has a particularly close connection with the UK’s history and national life, or is of outstanding aesthetic importance or scholarly significance. If one or more of the criteria is met, and the Secretary of State temporarily defers the decision to grant the export licence, public institutions are invited to put forward offers. The owner of the item is not compelled to agree a sale to any interested institution but is unlikely to be granted an export licence if he or she refuses an offer.

Import and export law rarely features in case law, with the recent exception of R (Simonis) v. Arts Council England,39 which was heard and dismissed by the Court of Appeal in March 2020. The appeal concerned a painting entitled Madonna con Bambino, attributed to Giotto, which had made several journeys to and from Italy, where it was purchased in 1990, before the owner sought a permanent export licence to send the painting from the UK to Switzerland. The Arts Council decided that Italy, rather than the UK, was the competent authority under EU law to determine whether the export licence should be granted, given that the painting’s earlier dispatch from Italy to the UK in 2007 had not been ‘lawful and definitive’ within the meaning of the Regulation. Both the court at first instance and the Court of Appeal agreed with the Arts Council. The result was that the owner of the painting would either be forced to return the painting to Italy, and to apply to the Italian authorities for an export licence to Switzerland, which is unlikely to be granted given Italy’s stringent export laws, or for the painting to remain in the UK subject to restrictions on its movement.

iv Art finance

Art lending (i.e., the borrowing of money secured against art, antiques or other collectibles as security) is under-developed in the UK compared to other major art market centres, such as New York. Under English law, there is no fit-for-purpose non-possessory security interest for artworks where the borrower is an individual, although corporate borrowers can create a chattel mortgage. The Law Commission has produced a Goods Mortgages Bill, which has not, however, so far been brought forward by the government; the legal position is therefore unlikely to change in the foreseeable future. It remains to be seen whether the bill will be brought forward after Brexit to support the development of the London art market.

On 10 January 2020, AMPs (including dealers, galleries, agents and auctioneers) became part of the ‘regulated’ sector for anti-money laundering purposes under the new Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which implement the 5AMLD into UK law.

Members of the art trade who carry out transactions, or series of linked transactions, involving works of art valued at €10,000 or more must now conduct ongoing risk-based due diligence on the parties involved in those transactions. The definition of works of art is in line with current VAT legislation and excludes antique furniture and some decorative objects.

HMRC is the supervising body responsible for overseeing art market participants, keeping a register of supervised businesses, and checking that they are complying with their obligations under the new regulations. Since 10 June 2021, AMPs must be registered with HMRC as the sector regulator. AMPs were expected to carry out risk assessments and put policies and procedures in place to ensure they are compliant before that date. Failure to comply with the regulations is an offence, which can result in a range of sanctions including fines, suspension from dealing in high-value transactions and imprisonment.

Compliance includes putting into place risk assessments for new and existing clients, implementing anti-money laundering policies and procedures (and ensuring that they are followed), appointing a nominated officer and a compliance officer, where appropriate, and continually monitoring and training staff.

Importantly, the new money laundering compliance regime will have ramifications beyond the UK and EU in so far as it will affect non-European buyers who seek to purchase artworks in galleries, at fairs or at auction in the UK, as much as non-European dealers who transact as buyers and sellers in the London market, whether in person or online.

On 7 February 2020, the British Art Market Federation published guidance on anti-money laundering for UK art market participants, which was approved by HM Treasury.40 On 28 June 2021, HMRC published additional guidance on understanding money laundering risks and taking action for AMPs.41 A government consultation on an extension of the regulations, bringing, inter alia, digital art and crypto asset businesses within their scope, closed on 14 October 2021.42

Artist rights

i Moral rights

Moral rights are personal rights granted to the creators of artistic works, pursuant to Chapter IV of the Copyright, Designs and Patents Act 1988. The four components of moral rights are identified as: (1) the paternity or attribution right, which is the right of an artist to be identified as the creator of a work; (2) the right of integrity, which is the right of an artist to object to derogatory treatment of his or her work; (3) the right not to have a work falsely attributed, which entitles an artist not to be identified as the creator of a work created by someone else; and (4) the right to privacy in certain photographs and films. Like the economic rights associated with copyright described further below, moral rights arise automatically, except for the right of attribution, which must be asserted by the artist. Moral rights can be waived by the artist but are not capable of assignment. There is a scarcity of recent case law in the UK on the treatment of moral rights, and most of it is dealt with under the question of ‘derogatory treatment’ within the meaning of Section 80(2) of the 1988 Act.43 The recent burning of Banksy’s Morons in the US to sell an NFT of the artwork for a higher price has flagged questions of moral rights in the context of crypto assets.44 The scope of moral rights protection under UK law in similar circumstances remains uncertain; it is arguable that the right to integrity under the 1988 Act would not be infringed by the destruction of an artwork.45

ii Resale rights

Artists’ resale rights (ARR) were introduced to the UK via the Artist’s Resale Right Regulations 2006, implementing a European directive. Originally, the rights were restricted to living artists until January 2012, when amending legislation came into force entitling successors of deceased artists to exercise any inherited resale rights. Subject to certain exceptions, ARR entitles artists and their heirs to claim a percentage of the sale price on any resale of an original artwork in the secondary market (i.e., through an auction house or other art market professional), while copyright in that artwork subsists. ARR is collected and distributed through two entities in the UK: the Artists Collecting Society and the Design and Artists Copyright Society. Since their introduction, ARR have been subject to criticism by art market professionals and it remains to be seen whether they will be retained in the longer term after Brexit.

iii Economic rights

Copyright is the most significant intellectual property right subsisting in an artist’s works and is designed to protect the artist’s economic interests. Unlike in certain other jurisdictions, under UK law copyright arises automatically at the point when an original artwork is created if the artist meets the criteria for protection under national law and does not require registration. For artistic works, the term of copyright is the life of the author plus 70 years from the end of the calendar year in which the author died. Copyright can be transferred by inheritance, licensed or assigned.

In view of Brexit, the UK government has not implemented the controversial Directive (EU) 2019/790 of the European Parliament and of the Council of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC into UK law but has stated that any future changes to the UK copyright framework will be considered as part of the usual domestic policy process.46

More unusually, artists may seek to protect their creations, brands or names by registering a trademark. Street artist Banksy attempted, through his representatives Pest Control Office Limited, to trademark a series of his well-known images and to create a trademark portfolio to address the problem that his anonymity prevents him from asserting copyright protection for his works. Following a challenge by a greeting card company, Full Colour Black, the European Union Intellectual Property Office has now invalidated a number of these trademark registrations, including for Flower Thrower47 and Monkey Sign48 on the grounds of bad faith, the office concluding that Banksy showed no intention to use the trademark to commercialise goods at the time of its registration. The decisions throw into question whether other trademarks in the artist’s international portfolio will now face similar challenges.49

Trusts, foundations and estates

Trustees holding and managing art collections are not subject to wealth tax in the UK, but they may be liable to inheritance tax (IHT) or capital gains tax (CGT) on certain events.

The IHT treatment of art collections will depend on the nature of the trust. Where the trust is subject to the ‘relevant property regime’ (broadly speaking, discretionary trusts), then the trustees will generally be liable to IHT every 10 years or on appointments out of the trust, currently at a maximum rate of 6 per cent on the value of the trust fund, if the assets do not qualify for exemption. If the trust is a life interest trust, then no IHT will arise until the death of the life tenant or earlier termination of the life interest.

Relevant IHT exemptions include the following.

  1. Conditional exemption, which is an IHT deferral scheme. The tax may be clawed back on a subsequent transfer or failure to observe the terms of the undertakings. To qualify for this exemption, the assets must meet a pre-eminence test and the owner is required to provide undertakings as to public access and the maintenance and preservation of the assets. The exemption can be claimed on certain chargeable events, including when assets are transferred by an individual into a trust, preventing an immediate IHT charge. In certain circumstances it can also be claimed to defer CGT. Conditional exemption was historically regarded as a good way to hand down family heirlooms to the next generation in a tax-efficient manner, but the rules have tightened significantly in relation to public access and can often be burdensome on a new owner. It should be noted that, due to the covid-19 pandemic, requirements for public access were relaxed throughout 2020 and to the end of 2021, so that any public access undertaking will not be considered to have been breached if the property owner is not able to provide reasonable public access due to government guidance on social distancing. There will also be no breach if there was no public access at all during 2021 prior to 1 August 2021. Until the end of 2021, HMRC will consider temporary adjustments to agreements on an individual basis, including reducing the number of visitors and closing certain rooms.
  2. The acceptance in lieu scheme allows trustees to offer artwork to public institutions in exchange for IHT tax credit. A wish can be expressed as to the ultimate destination of the property. To qualify for this exemption, the objects must either be of pre-eminent importance on the grounds of their national, scientific, historic or artistic interest, or associated with an important historic building.
  3. Business property relief may be available at 100 per cent if the artwork is situated in a building that is open to the public and run as a business.

Trustees are liable to CGT (currently at 20 per cent) on the disposal of chattels exceeding £6,000 in value (although there are special rules about the treatment of sets of chattels). However, no CGT is payable on ‘wasting assets’ (i.e., assets with a predictable life not exceeding 50 years, including fine wines, antique clocks and watches, and some motor vehicles), provided the disposal is not deemed to be made as part of a trade or business.

Outlook and conclusions

As we approach the end of 2021, the art market continues to face uncertainty about the practical effects of the future trading relationship between the UK and EU. At the same time, the reach of the UK art market has always been much wider than Continental Europe, and no doubt London will continue to thrive as a leading centre of the international art market, in particular as covid-19-related restrictions continue to ease and the art market returns to more in-person dealings. Both issues will no doubt continue to occupy headlines for some time to come. But there will be other developments to watch as we enter 2022; in particular, the impact of NFTs on the art market, the interaction between traditional art and crypto assets, and the metaverse as the next frontier to be tackled by innovators in the art market. The myriad of unresolved legal and ethical issues, to which NFTs give rise, will no doubt also be explored further.50 With regard to the regulatory environment, HMRC as the sector regulator is likely to start enforcing the new anti-money laundering and compliance regime for the art market during 2022, and the regime will no doubt be expanded to include new asset classes, such as crypto assets, in due course.

Footnotes

1 Gregor Kleinknecht is a partner and Anastassia Dimmek is an associate at Hunters Law LLP. The authors are grateful to colleagues Julia Richards and Vanina Wittenburg for their contribution to the ‘Trusts, foundations and estates’ section of this chapter. The law as stated is the law of England and Wales.

2 The Art Market 2021, an Art Basel and UBS Report, prepared by Dr Clare McAndrew, p. 17.

3 id., p. 107.

4 Laura Chesters, ‘UK remains in second place in the global art market league table’, Antiques Trade Gazette, 5 March 2020, www.antiquestradegazette.com/news/2020/uk-remains-in-second-place-in-global-art-market-league-table.

5 The Art Market 2021, an Art Basel and UBS Report, prepared by Dr Clare McAndrew, p. 58.

6 id., p. 172.

7 id., p. 193.

8 id., p. 173.

9 id., p. 212.

11 Reported in BBC News, ‘Fake Banksy NFT sold through artist’s website for £244k’, www.bbc.co.uk/news/technology-58399338.

15 The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (www.legislation.gov.uk/uksi/2019/1511/contents/made).

16 [2020] EWCA Civ 649.

17 UKSC 2020/0121.

20 Section 12(1) to (3), Sale of Goods Act 1979.

28 Qatar Investment and Projects Development Holding Co & Anor v. Phoenix Ancient Art SA [2021] EWHC 2243 (QB).

31 Case No. CL-2017-000071, unreported.

32 Sotheby’s v. Mark Weiss Ltd and others [2020] EWCA Civ 1570.

33 Sections 13–14, Sale of Goods Act 1979.

34 Sections 9–11, Consumer Rights Act 2015.

39 [2020] EWCA Civ 374.

43 Simon Stokes, Art and Copyright, Third edition (Bloomsbury Publishing, 2021), p. 79.

44 Reported by BBC News, www.bbc.co.uk/news/technology-56335948.

45 Simon Stokes, footnote 43, p. 83.

48 EUIPO Decision on Cancellation No 39 873 C (Invalidity) (https://files.lbr.cloud/public/2021-05/banksy%20monkey%20trademark%20cancellation.pdf).

49 A review of these cases by the authors was published in Lawyer Monthly, 1 November 2021 (www.lawyer-monthly.com/2021/11/lessons-learned-from-the-cancellation-of-banksy-trademarks).

50 See Gregor Kleinknecht, ‘NFTs give rise to a myriad of unresolved legal and ethical issues’, London Art Week Summer 2021 catalogue, p. 10, www.hunterslaw.com/gregor-kleinknecht-discusses-nfts-in-the-london-art-week-summer-2021-catalogue.

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